Interest Rates Archives

Federal Reserve Cuts US Dollar Interest Rates

Written by IntaCapital Swiss on September 30, 2024. Posted in News & Reports. Leave a Comment

On 18^th September 2024 the Federal Reserve cut interest rates by 50 basis points: an aggressive start to bring interest rates down in the United States. After more than twelve months, the FOMC voted by 11 to 1 to lower the federal funds rate to a range of 4.75% – 5%, reflecting the first interest rate cut in over four years. Whilst the markets are expecting further rate cuts this year, projections released by the Federal Reserve regarding the same showed that there was a narrow majority of 10 to 9 in favour of further cuts in 2024.

Following the announcement, the Federal Reserve Chairman Jerome Powell was quoted in a press conference as saying, “This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%”. Whilst inflation is indeed moving downwards, analysts suggested that the Chairmans press conference was economic speak for “we are still not sure about the labour market”.

However, Chairman Powell did caution the markets not to take this rate cut as a confirmation that the Federal Reserve has now set the pace at which rate cuts will be considered in the future. As usual, any further rate was tempered with a statement from policymakers that “they will consider additional adjustments to rates based on incoming data, the evolving outlook and balance of risks”. Further tempering was added when policymakers also advised that jog gains have slowed, and inflation remains slightly elevated.

Despite these somewhat negative announcements regarding future interest rate cuts, the financial markets have taken the opposite view with traders ramping up their bets on future interest rate cuts and pricing in a further 70 basis points of rate cuts between now and the end of Q4. Experts suggest that the pace of rate cuts will be as the market predicts, as previously traders have done a relatively good job of predicting the amount and early pace of the cuts. Indeed, despite negative rhetoric, including the warning that ‘the outlook for the world’s largest economy was uncertain’, the ‘Dot Plot’* published by the Federal Reserve indicates that interest rate could be cut by another 50 basis points by the end of Q4, and a further full 1% cut in 2025.

*Dot Plot – This is a graphical display consisting of data points which the Federal Reserve uses to predict interest rates. The graphs display quantitative variables where each dot represents a value.

The Bank of England Keeps Interest Rates on Hold

Written by IntaCapital Swiss on September 30, 2024. Posted in News & Reports. Leave a Comment

On September 19^th, 2024, and despite a full 50 basis point reduction in US interest rates announced by the Federal Reserve the day before, the Bank of England, (BOE) advised they were holding interest rates steady at 5%, with the MPC (Monetary Policy Committee) voting by 8 – 1 to keep the cost of borrowing steady. Whilst many experts, investors and analysts expected a hold on interest rates, the word coming out of the BOE was that they are waiting on further data to confirm inflationary pressures have subsided before making a second cut in the cost of borrowing. The decision also pushed sterling to its strongest level against the US Dollar since March 2022, and is just a hair’s breadth away from its two year high against the Euro.

I think we are on a gradual path down. That is the good news.
Andrew Bailey, BOE Governor

In a statement by the BOE Governor Andrew Bailey he said “We should be able to reduce rates gradually over time, it is vital that inflation stays low, so we need to be careful not to cut too fast or by too much.” Later on the Governor was also quoted as saying “I think we are on a gradual path down. That is the good news. I think interest rates are going to come down. I am optimistic on that front, but we do need to see some more evidence. We need to see that sort of residual element now fully taken out, to keep inflation sustainably at the 2% target.”

Released minutes of the MPC meeting said, “In the absence of material developments, a gradual approach to removing policy restraints remains appropriate.” The minutes also reiterated the need for policy to remain ‘restrictive for sufficiently long’ and that the MPC will take a meeting-by-meeting approach to interest rates. This gradual approach comes despite recently released data showing August inflation at 2.2% (below the BOE’s forecast of 2.4%), however, service inflation remains sticky at an uncomfortable high of 5.6%. Some experts are suggesting that service inflation may well hamper any further rate cuts this year, but they are definitely in the minority.

Experts advise the general feeling in the financial markets is that at the next policy meeting of the MPC on November 7th, a rate cut is almost a racing certainty, especially as inflation is below the BOE’s expectation. However, the BOE have warned that they expect headline inflation to increase to 2.5% by the end of Q4 this year. Elsewhere, interest rates were held steady in Japan, China , Taiwan, and Turkey, whilst Oman and South Africa both cut interest rates.

September 2024: The 2nd ECB Interest Rate Cuts

Written by IntaCapital Swiss on September 18, 2024. Posted in News & Reports. Leave a Comment

For the second time in 2024 the ECB (European Central Bank) has cut interest rates by a ¼ of 1% (25 basis points) as inflation recedes towards their target of 2%. The key deposit rate was cut, as expected by most financial experts, to 3.5% despite the recovery facing some economic headwinds. Additionally, the refinancing rate (or minimum bid rate, is the interest rate which banks have to pay when borrowing money from the ECB) was cut by a full 60 basis points to 3.65%, a technical adjustment which had been on the cards for quite a while.

The ECB President Christine Lagarde, like her peers in the United Kingdom and the United States, was quoted as saying “we shall remain data-dependent” and going on to add that the decision to cut interest rates was totally unanimous. The President was further quoted as saying “A declining path is not predetermined, neither in terms of sequence, nor in terms of volume”. A number of analysts surmised that this is financial speak for ‘We may or may not be doing another rate cut this year and we are therefore not going to commit ourselves.’ Financial markets slightly eased back on bets on further monetary easing predicting a total, predicting a circa 36 basis points increase by the end of Q4, though there is no complete consensus.

The interest rate announcement by the ECB follows a fall in inflation in August to 2.2% with data released showing wage increases which drive price increases in the service sector are now on the decline. A comprehensive measure of workers’ pay, the “Compensation Per Employee”, provided data showing an easing to 4.3% in Q2 from 4.8% in Q1. The ECB President stressed that their inflation target of 2% should be reached by the end of Q4 2025. However, as in a number of other economies, service inflation is still on the radar as being one of the main concerns.

Despite the sluggish growth in the euro zone’s 20- nation economy, where declining momentum from earlier in the year (households are not supporting the rebound in Q1 and figures for manufacturers remain indifferent), many analysts suggest that there is a predictable outlook to interest rate cuts. Whilst many analysts see an interest rate cut in each of the upcoming quarters until end of Q4 2025, there are some doubts due to the weak economy, which is the justification for the ECB remaining on the fence regarding the timing of future rate cuts.

The Declining Value of the US Dollar

Written by IntaCapital Swiss on September 2, 2024. Posted in News & Reports. Leave a Comment

In the past two months the US Dollar has declined 5% against major currencies (the US Dollar index currently stands at a 13 month low) suggesting that increase in the value of the dollar in the years after the Covid-19 Pandemic has come to end. Analysts suggest that this is not too surprising because the rhetoric coming out of the Federal Reserve has recently softened regarding interest rates. Indeed, the Chairman of the Federal Reserve, Jerome Powell, made it plain at the Jackson Hole Economic Symposium (20^th – 22^nd August 2024) that inflation was, in fact, receding. Chairman Powell went on to say “Inflation is on what increasingly appears to be a sustainable path to our 2% objective”.

The big question at the moment is not if, but by how much the Federal Reserve will cut interest rates at their next meeting on September 18^th, 2024, and will sustained cuts in interest rates erode the dollar haven that the United States has enjoyed for the last three years? Analysts suggest that according to bond market pricing* financial markets can expect a 0.25% reduction in interest rates at the September Federal Reserve meeting. However, there are those in the market who suggest that the Federal Reserve could indeed cut rates by a full half percentage point.

*Correlation Between Interest Rates and Bond Prices – The relationship between interest rates and bond prices are such that when interest rates fall bond prices rise and when interest rates rise bond prices fall. Thus when existing bonds have a lower interest rate than current interest rates they are less desirable, so as the interest rate on the US Dollar falls, so bonds become more attractive and their price rises.

What effect will the declining value of the US Dollar have on emerging markets, exporters of commodities, and the rest of the world? As the dollar declines due to interest rate cuts some analysts are questioning whether the status as global reserve currency will be affected. Experts agree that the reserve currency status will not be threatened by a declining US Dollar as the United States is still the safest place to invest with buoyant stock markets and decent yields. However funds that are domiciled in the United States may look outside its borders as investment opportunities open up in other parts of the world.

Elsewhere, countries whose economies rely on the exports of commodities will usually reap the benefit of a falling US Dollar, as the commodity price correlation usually moves inversely to that of the US Dollar. Emerging markets that have not had the best of times in recent years should broadly benefit, especially those resource-poor markets (Inc India and China) who rely on the importation of commodities denominated in US Dollars. The US Dollar has lost ground against the G-10 currencies, the largest of which is within the European Union and specifically the Federal Republic of Germany, where a stronger Euro will only increase the pain of weakening capital expenditure and consumer confidence.

The odds are very good for the Federal Reserve to cut interest rates at their September meeting. However, Chairman Powell always hedges his bets by reminding the financial community that their decisions are always data driven. He reminded us at Jackson Hole, with the upside of beating inflation against the downside of labour market concerns (which had cooled substantially with unemployment rising to 4.3%), future actions would depend on incoming data and the balance of risks.

Are Global Markets Facing a New Period of Volatility?

Written by IntaCapital Swiss on August 16, 2024. Posted in News & Reports. Leave a Comment

On Monday 5^th August 2024 trading rooms in financial centres across the world faced one of the most volatile and chaotic days in recent history. In the United States by the close of business on Monday The MSCI (Morgan Stanley Capital International) All Country World Index (ACWI) was showing 90% of stocks had fallen, in what has been termed as an indiscriminate global sell-off. In Tokyo the Nikkei was down 12%, in Seoul the Kospi was down by 9% and at the opening bell in New York the Nasdaq plunged 6% in seconds. However by the Thursday evening of that week the turmoil in the markets had been forgotten as the S&P and ACWI were both down by only 1%.

But what brought about this huge summer sell-off? Many financial experts suggest that financial markets had convinced themselves that a soft land for the US economy was a given especially after what was perceived as a successful fight against inflation, with interest rates being kept high by the Federal Reserve. However, the moves in the markets were completely off the scale in relation to what actually triggered the sell-off. Analysts suggest the touchpaper was lit when two economic updates were published in the first two days of August 2024, plus a further announcement by the Bank of Japan (BOJ) that they were raising interest rates.

The first set of data was a survey of manufacturing, which was closely followed by official data released regarding the state of the US labour market. When taken together analysts suggested that instead of a soft landing, the US economy was indeed heading for a recession, and that unlike the Bank of England and the European Central Bank (ECB), the Federal Reserve was moving too slowly on interest rate cuts. The data released on new jobs, which was by no means the worst of the year, fell short of expectations of being only 114,000 as opposed to the expected figure of 175,000.

The start of the sell-off began in the Asian markets on Monday 5th August, as a stronger yen and rising interest rates in Japan combined with the bad economic data coming out of the United States. A vast number of market players and investors have been tied up in the “Yen Carry-Trade”*, where advantage has been taken of low interest rates in Japan allowing investors to borrow cheaply in Yen and invest in overseas assets especially in large US tech stocks and Mexican bonds. A number of traders felt the Yen carry trade was the “epicentre” of the markets and the unwinding of these trade caused the shakeout that followed.

*Yen Carry Trade – For many years cheap money has been in Japan where interest rates have held at near zero. Any investor, bank, hedge fund etc can, for a small fee, borrow Japanese Yen and buy things like US tech stocks, government bonds or the Mexican Peso which have in recent years offered solid returns. The theory to this trade is that as long as the US Dollar remains low against the Yen investors can pay back the Yen and still walk away with a good profit.

The sell-off also hit the Tokyo Stock Exchange which recorded its sharpest fall in 40 years, whilst the VIX** also known as the “Fear Gauge” hit a high of 65 (only surpassed a few times this century having enjoyed a lifetime average of circa 19.5), implying the markets expect a swing of 4% a day over the next month in the S&P 500. Analysts announced that when trading hit its peak it was very reminiscent of the 2007 – 2009 Global Financial Crisis, but without systemic risk fears. A well-known Japanese equity strategist suggested “The breath and the depth of the sell-off appeared to be driven a lot more by extremely concentrated positioning coming up against very tight risk limits”.

**The VIX – is a ticker symbol and the in-house or popular name for the Chicago Board Options Exchange’s (CBOE) Volatility Index. This is a popular measure of the stock market’s expectation of volatility based on S&P 500 index options.

In the last four years Yen carry trades have been very popular as Japan has been essentially offering free money keeping interest rates at almost zero to encourage economic growth whilst the United States, the United Kingdom and Europe were raising interest rates to fight inflation. For many, borrowing at next to nothing in Japan and investing in a US Treasury Bond paying 5% or Mexican Bonds paying 10% seemed like a no brainer. However, once the market fundamentals of this carry trade started moving towards negative territory the global unwinding of these trades was an inevitability.

The market makers were always in evidence throughout the sell-off, suggesting that the structure of the markets were still in place. However, experts said that the biggest moves on the VIX were driven by a tsunami of investors all moving in the same direction. As one senior executive put it “there was no yin and yang of different views”, it was just one way traffic. However, the rebound on the following Thursday just highlighted the lack of fundamental clarity where, as one expert put it “The market is so fascinated by what is the latest data point that the ties between day-to-day stock price moves and fundamentals are more disconnected than ever before”.

There have, however, been undercurrents in the background indicating a shift in current trends, and with unnerving global politics from the United States to the Middle East plus continued rumblings from China over Taiwan, volatility in the markets is ever present. Add to this US growth trending downwards and market/investor concern over stretched valuations in the US tech market, taken together with other factors including the fourth consecutive move south in the S&P and the VIX trending higher, a negative move in the markets could have been anticipated. So, whilst the fundamentals were in place to be interpreted by market experts, it was the data points and the unwinding of the Yen carry trades that kicked off the volatility swings.

Looking back from today (Friday 16th August) it is as if the volatility and single day crash never happened, however a number of experts suggest that markets could remain volatile until the Federal Reserve interest rate decision in September. Many renown commentators have said what happens in the United States does not stay in the United States, especially as the country has been a major driver of global economic growth, so if the United States does go into recession the world as a whole would suffer. Analysts also suggest that there are further Yen carry trades to unwind which will impart volatility into the markets. In the short-term, therefore, it would appear volatility is on the menu especially with an uncertain presidential election in November. Long term volatility is difficult to predict, but the markets will now be aware that when there is consensus thinking e.g. a soft landing for the US economy and all is rosy in the garden, markets can quickly turn on their heads and bite you very badly.

Has the Federal Reserve Left it Too late?

Written by IntaCapital Swiss on August 15, 2024. Posted in News & Reports. Leave a Comment

On the 6^{th of} June 2024 The European Central Bank (ECB) cut their interest rates by 0.25%, the Bank of England followed suit on the 1^{st of} August 2024 lowering their interest rates by exactly the same percentage points. However, the US Federal Reserve’s Federal Open Market Committee (FOMC) on the 31^{st of} July announced they were once again holding interest rates steady at 5.25% – 5.50% where they have now sat since July 2023. The last time the Federal Reserve cut interest rates was in March 2020, but all eyes are now on the FOMC meeting in September where financial markets and experts are expecting the Federal Reserve to announce a rate cut.

The mood coming out of the Federal Reserve suggests a cooling economy with data showing rising unemployment and moderating job gains. This suggests that the Federal Reserve may well indeed cut rates at their September meeting, but a weakening economy in some cases can spiral into a recession by feeding off itself. So, has the Federal Reserve left it too late to cut interest rates? Economists and financial experts alike remind us that the United States avoided a predicted recession in 2023, which may have resulted in favourable predictions that the US economy would enjoy a soft landing in 2024.

However, the Federal Reserve may have misinterpreted data in a favourable manner due to Q2 enjoying unexpected increased growth figures of 2.8%, which was taken as evidence that the US economy was indeed in good shape. Some analysts have looked beyond this figure and suggest the economic growth has been propped up not only by government spending (which has been backed up by a sizeable deficit) but also by excessive hiring in the public sector. Warning signals such as the ISM Manufacturing New Orders Index* (a bell weather signal for past recessions) is showing signs of decline, in the week ending July 2024 jobless claims rose to an eleven month high and plethora of companies who are consumer focused recently recorded earnings figures misses.

*ISM Manufacturing New Orders Index – This index, which is sometimes referred to as the “Purchasing Managers’ Index”, is considered a key indicator of the current state of the US Economy. It indicates the level of demand for products by measuring the amount of ordering activity at the nation’s factories.

Other warning signals come from the New York Federal Reserve who are suggesting that there is a better than even chance of a recession appearing at some stage in Q3 and Q4. Such predictions are based on “the curve over time of bond yields”* though this has been an unreliable indicator in the past. Experts at a major New York investment bank suggest that the mean or median optimum interest rate (based on a number of monetary policy rules) should be 4%. Yet the Federal Reserve chose not to cut interest rates despite inflation in June coming close (within 0.5%) to their benchmark target of 2%.

*The curve over time of bond yields – If the yield curve is flattening , it raises fears of high inflation and recession. In the event of yield curve inversion this “EVENT” is viewed as the likelihood of the US economy slipping into recession. An inverted yield curve occurs when short-term yields on US Treasuries exceed long-term yields on US Treasuries. This occurred on June 14^th, 2024, when the yield for a 10-year treasury was 4.2% and the yield for a 2-year treasury was 4.67%.

Experts suggest that an economy does not slow down in an undeviating manner and, unless checked, an economy can lose economic momentum and spiral out of control into recession. That means that any pricing by the financial markets for a soft landing can quickly go out the window. There are enough warnings out there for the Federal Reserve to take their foot off the brake on interest rate cuts, but will they lament not having cut interest rates in July when the FOMC meets in September.

Bank of England Cuts Interest Rates: Aug 2024

Written by IntaCapital Swiss on August 15, 2024. Posted in Blog Article, News & Reports, Uncategorized. Leave a Comment

On the 1^{st of} August 2024 the Bank of England (BOE) cut interest rates by 25 basis points to 5% making this cut the first of its kind since March 2020. The BOE has held interest rates steady at 5.25% since August 2023 in its on-going battle against inflation. The vote to cut interest rates was a knife-edge decision, with members of the Monetary Policy Committee (MPC) voting five to four in favour of cutting interest rates. It was the governor himself who cast the deciding vote whilst the chief economist of the BOE Mr Huw Pill voted against a rate cut. Financial markets had expected an interest rate cut because, for the second month in succession, inflation held steady at the BOE’s target of 2%.

The Governor of the BOE Andrew Bailey said that inflationary pressures had eased to the extent to allow the Bank to finally cut interest rates, but he went on to warn the markets and general public that they should not expect large rate cuts in the forthcoming months. The Governor went on to say, “Ensuring low and stable inflation is the best thing we can do to support economic growth and prosperity of the country”. This cut will be a boost for the new Labour Government as they attempt to revive a stagnating economy and improve living standards.

Whilst inflation fell back to 2% in May 2024 the BOE is still very concerned that prices still remain high and, in fact, are significantly higher than three years ago and sadly are still rising. The BOE remains worried that the service sector still has problems with stubborn price increases and resilience in wage growth. As for the future, the MPC advises that over the upcoming months inflation will probably rise to 2.75%, overshooting the benchmark set by the BOE of 2%. However, the BOE appears confident and have forecasted that inflation in 2026 will fall to 1.7% with a further drop of 0.2% culminating in an inflation figure of 1.5% in 2027.

Analysts have noted that the MPC has adopted a change in guidance, the key change being the wording on the “ importance of data release on wages and growth and service prices” have been dropped, but they did go on to say that they are closely monitoring the risks of inflation persistence. The recent announcement by the government of a public sector pay increase will, according to Governor Bailey, have little effect on inflation and the impact of other changes in policy would depend on how they were funded. These uncertainties combined with the hawkish stance by the MPC have left analysts confused, saying that current BOE policy is highly ambiguous, and they do not appear to be in a rush to cut rates again anytime soon.

Federal Reserve Holds its Benchmark Interest Rate

Written by IntaCapital Swiss on July 8, 2024. Posted in Blog Article, News & Reports. Leave a Comment

On June 12^th, 2024, the FOMC (Federal Open Market Committee) for the seventh straight meeting, once again held its benchmark interest rate steady at 5.25% – 5.5%, which is the highest level it’s been for over twenty years. Whilst Chairman Powell dialled back expectations for rate cuts this year saying the latest forecasts were a new conservative approach, financial markets suggest that there may be two rate cuts this year with the first cut possibly coming in September. However, policymakers have advised that instead of three rate cuts in 2024 as previously advised, they now only expect to make one rate cut in 2024.

On the same day before the FOMC meeting CPI (consumer price index) figures were published, reflecting better than expected data which is cause for optimism in the future. Chairman Powell was quoted as saying the “numbers are encouraging” and suggested that the latest CPI figures may not have been fully taken into account by the latest quarterly projections. He went on to say that although the committee were briefed on the CPI figures, most individuals do not update projections when data arrives in the middle of policy meetings. His words were jumped on by many leading experts who suggested that the door is still wide open for two rate cuts in 2024.

Officials of the Federal Reserve raised their outlook for inflation in the longer term to 2.8%, up 0.2% from their March 2024 estimation and still above their target of 2%. However, experts suggest the Federal Reserve is still trying to come to terms as to the appropriate time to cut interest rates, as there is uncertainty regarding tight monetary policy and the impact it is having on the economy. Despite high borrowing costs, consumer spending and job growth have been particularly resilient even though inflation remains above 2%. Chairman Powell has been quick to point out the split within the committee where the “Dot Plot”* showed eight officials expecting 2 rate cuts, seven expecting one rate cut and four expecting zero rate cuts.

*Dot Plot – This is a graphical display consisting of data points on a graph which the Federal Reserve uses to predict interest rates. The graphs display quantitative variables where each dot represents a value.

Experts suggest that chairman Powell is content to leave interest rates unchanged until the economy sends a clear signal such as a jump in the unemployment rate or further declines in the CPI. However, with the Federal Reserve’s eyes on the PCE index (Personal Consumption Index), nothing is really as it seems.

European Central Bank Finally Cuts Interest Rates

Written by IntaCapital Swiss on July 8, 2024. Posted in Blog Article, News & Reports. Leave a Comment

On June 6^th 2024 the ECB (European Central Bank) announced a cut in interest rates of 25 basis points to the deposit rate lowering it from 4.00% to 3.75% as headline inflation is now just above its 2% target having fallen from 10% in 2022. Inflation has largely come down due to lower fuel costs and supply chains, which have now become normalised after a few post Covid-19 twists and turns.

However, the ECB advised that inflation is not yet beaten as the service sector remains sticky and as a result the ECB announced that “despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year.” The decision to lower interest rates was nearly unanimous with the only negative vote coming from Robert Holzman, Governor of the Central Bank of Austria.

The President of the ECB Christine Lagarde hedged her bets when answering questions regarding future rate cuts. She is quoted as saying “ Are we moving into a dialling back phase? I would not volunteer that. Is the dialling back process underway? There’s a strong likelihood”. A number of experts have described her message as somewhat confusing, especially as she added “We are not pre-committing to a particular rate path”. Experts and analysts alike suggest that another rate cut in July is now unlikely, with financial markets now focusing on September 2024.

Last month the President Lagarde declared inflation under control, however with the lack of a clear path on rate cuts being offered by the ECB the string of recent data has pointed the finger at enduring price pressures. This alone would suggest that the ECB is going to be, as with other central banks, data driven prompting cautions when talking about future interest rate cuts. Together with a quarterly outlook published by the ECB forecasts for inflation will average 2.2% for 2025 up from an earlier forecast of 2%.

Elsewhere the Bank of Canada reduced its benchmark interest rate but both the Federal Reserve and the Bank of England are fighting tougher price pressures, and are only expected to follow suit in the coming months. Financial markets are waiting for some clear signs from both the Bank of England and the Federal Reserve as to when they expect to cut rates.

The Financial Markets Got It Wrong Predicting a US Dollar Decline in 2024

Written by IntaCapital Swiss on June 21, 2024. Posted in Blog Article, News & Reports. Leave a Comment

As 2024 started many investors, experts and analysts predicted that the US Dollar would decline. However, the greenback, thanks to a very hot US economy, and an inflation problem ensuring the Federal Reserve will not cut interest rates for the time being, means a strong dollar has returned and does not look like it is going away. Furthermore the IMF (International Monetary Fund) has predicted that growth in the United States will grow at a rate of two times that of the remaining members of the Group of Seven, and with geopolitical tensions at a height not seen for decades, the US Dollar is still viewed as the ultimate safe haven.

Many economists and other analysts are predicting that the US Dollar will continue to grow, with one well-known bank suggesting the dollar will continue to increase in value through 2025. The resurgence of the dollar has come on the back of many financial signals pointing to the US economy sidestepping a much anticipated slowdown, with manufacturing continuing to grow and the labour market remaining tight, plus as already mentioned, the forecast of interest rate cuts being put back due to inflationary problems.

The financial markets have scaled back their bets on an early cut in US interest rates which has resulted in soaring benchmark treasury yields hitting a figure of nearly 5% which has been a major factor in the US Dollar’s appeal. The dollar has also been further driven by the demand for AI (Artificial Intelligence) resulting in massive inflows into the relevant US Stocks. One senior asset manager has been quoted as saying “The dollar is such a high yielder, if you are a global allocator and running your portfolio, what a slam dunk to improve your risk-adjusted returns: buy shorter-term US debt, unhedged.

The US Dollar during times of financial and or political instability is still recognised as the ultimate investor sanctuary, and as such with the current geopolitical turmoil investors have been seeking refuge in the greenback. This was proved last Friday 19^th April, where there was a surge of US Dollar buying following Israel’s retaliatory strike on Iran. Indeed, experts suggest that whilst there has been a surge in US Dollars due to geopolitical risks, its strength will probably last well beyond the current conflict. Analysts also advise that high treasury yields coupled with American energy independence will more than likely continue to retain the greenbacks appeal to the financial markets and investors alike.

Tag: Interest Rates